Non-solicitation covenants are clauses that prohibit employees from soliciting clients or employees from their former employer after leaving the company. The courts have generally upheld these covenants when they are reasonable in scope, duration, and geographic limitation. However, enforcing such covenants can be challenging. Employers should carefully draft non-solicitation clauses to ensure they are enforceable and seek legal advice when dealing with potential breaches.
Although non-solicitation and non-competition clauses have been considered a restraint of trade and contrary to public policy, they can be enforceable in certain circumstances. Since the threshold for enforcement is high, those circumstances have often been few and far between.
In Catch Engineering Partnership v. Mai, Justice Armstrong upheld the enforceability of a non-solicitation covenant in an employment contract and awarded damages against the former employee. This case is important as it deals with how and when a non-solicitation covenant will be enforced and the damages that may be awarded for such a breach.
Binh Mai began working with Catch Engineering Partnership (“Catch”) on February 25, 2019, in a t technical engineering role. Prior to his start date, Mai signed an offer of employment letter and a confidentiality agreement. The confidentiality agreement had the following non-solicitation covenant:
During the term of this Agreement and for a period of twelve (12) months from the effective date of termination of employment, either by the Employee or [Catch], the Employee shall not:
(a) intentionally act in any manner that is detrimental to the relations between [Catch] and [Catch’s] clients, suppliers, contractors, employees or others; and
(b) Directly or indirectly contact or solicit any customers of [Catch] or any of its subsidiaries or affiliates with whom he or she has dealt during the twelve (12) months prior to his or her termination, for the purpose of inviting, encouraging or requesting any [Catch] customer to transfer from [Catch] to the Employee or the Employee’s new employer, or to otherwise discontinue its patronage and business relationship with [Catch].
During his employment with Catch, Mai was assigned to provide engineering services to one of Catch’s clients – Canadian Natural Resources Limited (“CNRL”). At the time, CNRL was under a hiring freeze and had Catch supply workers on a contract basis.
On December 17, 2019, after Catch refused to increase Mai’s salary, Mai gave them his notice of resignation, stating his last day would be January 3, 2020. Just three minutes after submitting the notice of resignation, and while still employed by Catch, Mai emailed his supervisor at CNRL to ask if he could work for CNRL as a contractor through another agency.
On December 19, 2019, again while still employed by Catch, Mai secured a position with Noramtec, another engineering services company, and advised his CNRL supervisor of the change.
Mai remained employed by Catch until the end of the resignation notice period. On January 6, 2020, Mai started employment with Noramtec and was assigned to CNRL to provide the same engineering services that he had provided through Catch. CNRL then ended its engagement with Catch.
Catch brought a claim against Mai alleging, among other things, that Mai breached the non-solicitation covenant. The issues before the Court included whether the non-solicitation covenant was enforceable, whether Mai breached the non-solicitation covenant, and, if so, what were Catch’s damages.
Is the Non-Solicitation Covenant Enforceable?
To be enforceable, the restrictive covenant must be:
- reasonable, having regard to the circumstances;
- narrowly focused to protect a legitimate business interest; and
- clear and unambiguous.
Additional scrutiny is required when examining a restrictive covenant in an employment contract due to the potential imbalance of bargaining power and the possibility that it could deny a former employee the right to use their knowledge, skills, and expertise to find alternate employment.
Justice Armstrong had no difficulty finding that the non-solicitation covenant was reasonable and enforceable for the following reasons:
- The non-solicitation covenant protected a legitimate business interest. Catch’s business model was based on supplying skilled technical workers to clients. It expended time and resources to develop and maintain relationships with clients. Therefore, it be able to protect those relationships from being appropriated by its employees.
- The non-solicitation covenant was narrowly focused to protect Catch’s legitimate business interests and did not interfere with an employee’s ability to use their knowledge, skills, and experience in the job market. For instance, rather than a full non-competition covenant, Catch used a less restrictive non-solicitation covenant that was limited to only those customers whom the employee worked for in the last 12 months of their employment. Further, the non-solicitation covenant was limited to 12 months post-employment, which was reasonable given that most of Catch’s clients renew their contracts on a one-year basis.
- The non-solicitation covenant did not offend the public interest. For the reasons provided above, the non-solicitation covenant did not unreasonably restrain employees from engaging in their vocation.
- Mai argued that the non-solicitation clause was not enforceable because it did not include a geographic restriction. Notably, Justice Armstrong stated that when a non-solicit covenant is restricted in its application to an identified client or clients, it may be reasonable notwithstanding the absence of a geographic restriction. Justice Armstrong commented that given the prevalence of remote work in the modern workplace, geographic restrictions are, in many cases, obsolete.
- The non-solicitation covenant was clear and unambiguous. There was nothing in the non-solicitation covenant that would leave Mai unclear as to his obligations and restrictions.
- Lastly, there was no power imbalance during the negotiation of the terms of Mai’s employment. For instance, Mai was aware that Catch was in a vulnerable position to its client, CNRL, and used that to his advantage to negotiate a higher salary.
Did Mai Breach the Non-Solicitation Covenant?
Justice Armstrong found that Mai’s emails to his supervisor at CNRL on December 17 and 19 were a clear and unequivocal invitation for CNRL to discontinue its engagement with Catch and to contract with another agency. By soliciting CNRL in this fashion, Mai was in breach of the non-solicitation covenant.
Justice Armstrong stated that in order for the person bringing a lawsuit (the plaintiff, and in this case, Catch) to receive compensation for harm done to them (damages), they need to show, with a higher likelihood than not, that they suffered harm and that the harm was caused by the other party (the defendant, and in this case, Mai) breaking the agreement not to solicit customers. It is the court's responsibility to decide on the amount of damages based on the available evidence, even if the exact amount cannot be determined with absolute certainty.
Justice Armstrong was satisfied that had Mai not solicited CNRL, CNRL would have continued its contract with Catch and Catch would have been able to hire a replacement to continue to supply the engineering services under the contract.
To calculate the damages, Justice Armstrong estimated Catch’s lost profit under the contract for the years 2020, 2021 and 2022 in the total amount of $112,320 – the expected revenue less Mai’s salary, benefits, payroll taxes, and overhead. Justice Armstrong also applied a discount of 25% and 50% for the years 2021 and 2022 respectively, due to unknown contingencies. Justice Armstrong declined to award damages beyond the end of 2022 as it was too speculative given the passage of time.
This case is a welcome decision for employers who have or want to implement a non-solicitation covenant in their employment contracts. This case highlights the high level of scrutiny and the importance of properly drafting restrictive covenants in order for them to be enforceable.
If you or your organization has or is looking to implement a non-solicitation covenant, contact Lee Carter in Calgary, Joël Michaud in Edmonton, or any member of Field Law’s Labour + Employment Group. Field Law’s Labour + Employment Group is available to assist in this area along with all other matters relating to employment contracts and policies.
Link to decision: Catch Engineering Partnership v. Mai, 2023 ABKB 279